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1 Pension and OPEB Reform in Detroit Eric Lupher CRC’s Research Director August 44, 2014.

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Presentation on theme: "1 Pension and OPEB Reform in Detroit Eric Lupher CRC’s Research Director August 44, 2014."— Presentation transcript:

1 1 Pension and OPEB Reform in Detroit Eric Lupher CRC’s Research Director August 44, 2014

2 Citizens Research Council of Michigan Founded in 1916 Statewide Nonpartisan Private not-for-profit Promotes sound policy for state and local governments through factual research Relies on charitable contributions from Michigan foundations, businesses, organizations, and individuals

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4 Detroit retirement pension system Soft closing of old systems 6/31/2014 New Hybrid System Defined Benefit -Depends on employer and employee contributions -Eligible at age % multiplier -COLA increases of 2% authorized Defined Contribution -Members may elect to reduce compensation by 3%, 5%, or 7% -Credited with earnings = to actual investment rate of return (>0%, <5%) -Payable in lump sums, equal monthly payments over 3 years, added to retirement allowance

5 Uniqueness of Detroit’s New Defined Benefit Plan Trustees have 8 levers to pull to keep pulling plan toward adequate funding If funding level below 100%  Next plan year: a)May not award COLA increases b)A Pension Accumulation Fund is created and sums in that fund shall be used in such circumstances c)Member mandatory contributions are increased from 4% to 5%

6 If funding ratio gets even worse If funding level below 80%  Next plan year: a)All clawbacks in last slide are implemented or continued b)Retirement allowance shall not include the COLA adjustment that was most recently added to allowance c)Member mandatory contributions are increased from 5% to 6% d)Retirement allowance for plan year preceding plan year referenced in (b) is withdrawn e)Retirement allowance shall be calculated using 1% of members average final compensation instead of 1.5%

7 OPEB–Non Medicare Eligible As of 3/1/14 – Retirees and survivors were given monthly stipend checks to purchase health care through ACA Cut their $605 per month retiree health insurance coverage Replaced with $125 to $175 per month (depending on income) stipend to purchase health care through exchange

8 Retiree Health Care After 1/1/15 – Retiree health care offered through new independent health care trusts —Voluntary Employee Beneficiary Association (VEBA) Enables the city to walk away from $4.3 billion retiree health care liability

9 No effort to divorce pension board from city workforce Board of Trustees Mayor or designee, ex officio 1 city council member, ex officio City treasurer, ex officio 5 active members of retirement system (no more than one from any department) 1 Detroit resident appointed by mayor 1 retiree

10 10 Thank You Eric Lupher


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